By: Tim Brugger, Debt.com Financial Fitness Trainer
Choosing a Financial Advisor
Determining when, and how, to choose an Advisor to assist you with the all-important process of saving and investing doesn’t have to be difficult. It’s simply a matter of taking a few precautions, knowing what to ask and knowing what to look for.
Before we discuss some of the steps you can take to find the right one for you, let’s de-bunk a common misconception; financial advisors are for the wealthy. In many instances, part of the process in becoming financially sound was the decision to enlist the services of a professional early on.
With most professionals, it’s not necessary to have huge lump sums of money to invest. Some financial planners work with clients on a discretionary monthly income basis to start. That is, those with a few extra dollars each month, $100 or even $200, that want to get started saving for future needs such as education or retirement. So don’t let the fact you’re unable to plunk down $100,000 stop you.
What to Look For
To begin, think like an employer. If you were hiring this person to work along side you at the workplace, you’d want to check her background. Start with the Financial Industry Regulatory Agency’s (FINRA) website. They’ll have information on complaints or disciplinary actions, if any, filed against your prospective advisor.
Ask to speak to existing clients. If he won’t allow it, that’s a red flag in and of itself. Most advisors worth their salt have clients they have already confirmed will speak with prospective clients on their behalf. It’s not uncommon in the slightest and should be expected. This is a great way to hear from people like yourself that they follow through in a timely fashion, know their stuff, etc.
Make certain to understand how the advisor gets paid. Many are either beholden to, or are paid extra for, putting their clients in a particular investment or mutual fund family. While not necessarily a red flag, you should be aware of this as it may limit the options presented to you. There are also advisors that are paid only when there are gains in the portfolio. But for investors without large lump sums to invest, it’s unlikely this will be an option.
What is the advisor’s investment philosophy? Do they try and time the market by actively moving funds (usually not a good option, and certainly not for newer, or first time investors), or do they use a buy-and-hold strategy with the long-term in mind? For those investing $200 on a monthly basis, it’s probably too early to think about actively managing your assets. Better to take a long-term, proper asset allocation (diversified among different investment types like large stocks, mid-cap stocks and bonds) strategy.
Make certain to see, in writing, what the advisor promises to do and the fees that are charged for performing those services. She’s not going to provide guidance for free, nor should she. However, understanding the fees you incur and the impact of those is critical to your decision-making process.
What does your gut tell you? All the CFPs, ChFCs, MDRTs and CFAs after their name don’t mean a thing if they’re not trustworthy and hardworking. Remember, you’re interviewing them as much as they are interviewing you, so don’t be afraid to ask the hard questions. Have you ever had to fire a client; why? Has a client ever fired you; why? How they react to these questions is as telling as the responses themselves.
Don’t hesitate because you think you’re unable or an advisor may be unwilling. If they are hesitant, you don’t want to work with them anyway. But when you find one that treats you as the valued client you are, you’ll find she can be a real asset in your pursuit of financial freedom.